Option Strategies

Covered Call

In plain English

You already own shares. You rent out the right for someone else to buy them from you at a price you pick. You keep the rent (premium) even if they never "move in."

Good fit if

You own stock you would be okay selling at the strike price, and you want extra income while waiting.

Beginner mistake

Selling calls on stock you are not willing to lose — if the stock rockets higher, you may have to sell at the strike and miss further upside.

Remember in the basic options section we talked about the most basic scenario of buying a Call option and that doing so assigned certain rights to you as the buyer? We'll now we're ready to talk about the guy on the other side of the transaction. That is, the person selling the Call option.

Lets say you own 1,000 shares of Bank of America (BAC). You bought them earlier at $48/share. On June 12, 2026, BAC is trading around $57.20. You have gained on paper and would not mind selling if the price stalls near $58. Instead of just selling the stock you could sell call options against those shares. Normally your opening transaction is a buy order, but in this case your opening transaction is to sell.

Option	Strike Price	Premium received
BAC June 19 '26	$58	$1.45 * 10 * 100 = $1,450
BAC June 19 '26	$59	$0.95 * 10 * 100 = $950

You would submit a "Sell to Open" order to create a short option position. Lets pick a strike price from the table above. The current market price is $57.20 and you think it will hover near that level into the June 19 expiration, so you sell 10 calls at the $58 strike. You receive $1,450 up front ($1.45 * 10 contracts * 100 shares). That's cash in your account, but remember you have given someone the right to buy 1,000 shares from you at $58/share. As long as you keep those 1,000 shares of BAC you are covered.

Owning those 1,000 shares is what makes this strategy a "Covered Call." Otherwise your brokerage firm would make sure you had sufficient money in your margin account to cover the cost of buying 1,000 shares at the market price and selling them to the option buyer at $58/share.

There are a few ways to get you off the hook.

The market price falls below $58 and stays there until expiration. In that case you keep your 1,000 shares of BAC and you get to keep the $1,450 premium you received.
The buyer exercises the option before expiration. It is not that common but it can happen. In that case your brokerage firm does an option assignment (for a fee that is) and sells your shares to that other person. You get to keep your $1,450.
At expiration, BAC is still above $58. The option buyer's brokerage does an automatic assignment and your shares are sold at $58/share. You still get to keep your $1,450.
Before expiration, you decide you want to keep your shares of BAC. Maybe your opinion has changed and you now believe it could rally toward $65 and you do not want to cap your upside. You submit a "Buy to Close" order and buy back the options to close the trade. If the option is worth less than the original $1.45 you would realize a small profit by buying it back at a lower price. But you could also realize a loss if the price is above $1.45.